Parallel Audit of costs of controls of Structural Funds

Report ID: 84

In 2000, the Contact Committee of the heads of the SAIs of the EU Member States and the ECA (Contact Committee) set up a Working Group to carry out an exploratory survey on EU Structural Funds. In 2008, the Contact Committee of the heads of  SAIs of the EU and the EC mandated the Working Group on Structural Funds to follow up on previous audits of the EU Structural Funds and to carry out an audit on “costs of controls (this could include utilisation of Technical Assistance for the controls of Structural Funds)”.

The aim of the audit was to identify the level of costs incurred by internal control activities in the Member States and to examine whether the costs of controls are appropriate (e. g. relation to expenditures; cost-benefit; output, redundancy).

The Working Group developed and agreed on a common Audit Plan (see Annex) which provided a framework for carrying out the review. Each SAI examined their respective national administration concerning the costs of the internal national controls for the years 2007, 2008 and 2009 prescribed by EU law for the Structural Funds for the 2007-2013 programming period. The costs of controls have been measured using two methods: cost centre accounting and cost unit accounting.

General observation and main conclusions

• The system of implementation of Structural Funds is organized differently in individual Member State. The different ways of implementation can influence the costs of controls.
• The cost unit accounting generally indicates lower costs of controls than the cost centre accounting.

- In relation to three sevenths of the budget5 of the audited operational programmes, the highest costs of controls expressed as a percentage amounted to 4.02 per cent and the lowest to 0.36 per cent. This percentage may be affected by the level of implementation in each Member State. Corrected for wage differences between the Member States the highest costs of controls expressed as a percentage was 2.79 per cent and the lowest 0.41 per cent.
- The average percentage of total costs of controls in relation to three sevenths of the budget of all audited operational programmes amounts to 0.97 per cent.
- In each Member State the costs of controls started out relatively low in 2007, and then increased year after year. A further increase in control activities and thus of their costs can reasonably be expected in the following years.
-The vast majority of all costs of controls made so far in the Member States can be attributed to the managing authorities. The costs of controls for the certifying authority and audit authority are comparatively low because the involvement of these authorities in control activities was limited in the years 2007-2009.

The lack of availability of data in the Member States does not allow for accurate calculating the costs of controls.

- A relatively high amount of controls was outsourced. This entails risks of loss of knowledge for the governmental bodies and higher costs.

- Whereas only some control activities result in monetary outputs, all of them can bring non-monetary benefits

- Some auditees argued that both the purpose of individual controls and the outputs and benefits of individual control activities are predetermined by EU law.

Source: https://www.eca.europa.eu/sites/cc/Lists/CCDocuments/8729516/8729516_EN.PDF

Cost Effectiveness and Compliance with Legal Enactments of the European Union Structural Funds Administration System under the parallel audit "On Costs of Controls

Report ID: 102

Summary
Although the Ministry of Finance has, in accordance with the regulatory enactment, ensured establishment of EU Funds administration system, yet implementation of EU Funds administration is not ensured in the most effective way, as the audit has disclosed deficiencies in the following areas:
1. EU Funds administration system;
2. Planning and implementation of EU Funds technical assistance, including utilisation of
financial resources of EU Funds technical assistance project at the Ministry of Finance;
3. Deficiencies in regulatory enactments.

Analysis (of types) of errors in EU and National public procurement within the Structural Funds programmes

Report ID: 107

In 2013, the Contact Committee of the heads of Supreme Audit Institutions (SAIs) of the Member States of the European Union and the European Court of Auditors mandated the Working Group on Structural Funds to continue its review of issues relating to Structural Funds, more specifically, to carry out a parallel audit on the ‘Analysis (of types) of errors in EU and national public procurement within the structural funds programmes’.

The Working Group consisted of nine SAIs, while a further five SAIs and the European Court of Auditors acted as observers. The parallel audit was carried out in order to understand the reasons why beneficiaries fail to comply with public procurement rules. The comparison of the national results was intended to reveal differences or similar causes in the Member States. Most SAIs based their audit on errors already detected by their national management and control system.

Although this parallel audit was not designed to provide a full and accurate picture of the situation, the findings suggest a rather large number of errors in public procurement under Structural Funds. The following are the main conclusions and recommendations:

 Most authorities of the management and control systems do not systematically record the types of errors in public procurement procedures. They place focus on individual errors only. It is not always assured that all authorities, especially intermediate bodies, report every error detected.

We recommend national authorities to systematically record the types of errors detected in public procurement procedures. This is the only way to obtain a full picture of these errors and address them.

 In 2007, the Coordination Committee of the Funds (COCOF) issued guidelines for determining financial corrections with regard to irregularities in the application of public procurement regulations to contracts co-financed by the Structural Funds. Although the description of the categories is rather ambiguous and vague, most Member States used the COCOF guidelines in their original version without further developing them.

We recommend that national authorities refine the description of the categories and when needed elaborate categories and rates of the COCOF guidelines further in order to ensure a uniform and just application at national level. In addition to that, it would be helpful if the European Commission distributed good practices on how the guidelines are applied in the Member States.

 The national management and control systems detected more public procurement errors in contracts with values below the EU thresholds than above the EU thresholds. However, the average financial impact of errors was higher in procedures above the EU thresholds than below the EU thresholds.
Although most authorities already strive to prevent errors in public procurement procedures, we recommend national authorities to take more targeted action in order to reduce the most common errors in public procurement procedures and those with the highest financial impact.

 According to the findings of the Working Group “lack of knowledge” is the most common reason for errors in public procurement, followed by ‘interpretation difficulties’.
We recommend the Member States to request the European Commission to further clarify the legal framework and reduce the administrative burden for the contracting authorities and the bidders, but without resulting in limitation of the equal access, fair competition and efficient use of public funds. Further to that, we recommend Member States to take the following steps in order to prevent or reduce errors in the area of public procurement:

 They should keep public procurement rules as simple as possible and not change them too radically or too frequently.

 Some Member States should improve the knowledge of the staff of the national authorities in the field of public procurement in order that they are equipped to support beneficiaries and prevent errors.

 Member States should improve their communication policy and provide better information to beneficiaries.

They should try to ensure that beneficiaries exert due diligence at all stages of public procurement.

Simplification of the Regulations in Structural Funds

Report ID: 127

1. The administration and management of funds acquired from the European Union (EU) to support Operational Programmes are governed by cohesion policies (the current one being Cohesion Policy 2007-2013). In this regard, Malta has adopted two Operational Programmes, one for the European Regional Development Fund (ERDF) and another for the European Social Fund (ESF). The Operational Programme co-financed by ERDF and the Cohesion Fund (CF) is commonly referred to as Operational Programme I (OPI), whereas the Operational Programme co-financed by ESF is referred to as Operational Programme II (OPII). These two programmes, OPI and OPII, were developed according to the strategic priorities identified in the National Strategic Reference Framework. This latter document sets out Malta’s strategic priorities for the Cohesion Policy 2007-2013. In this context, OPI is geared towards investing in competitiveness for a better quality of life, while OPII focuses primarily on employment, education, training and social inclusion.

2. The various roles and responsibilities associated with the implementation of the Cohesion Policy 2007-2013 programme is entrusted to a number of governmental authorities. The Planning and Priorities Co-ordination Division within the Office of the Prime Minister is the designated Managing Authority (MA). The role of Certifying Authority (CA) is fulfilled by the EU Paying Authority Directorate within the then Ministry of Finance, the Economy and Investment, while the duties associated with the Audit Authority (AA) are carried out by the Internal Audit & Investigations Department.

3. The Cohesion Policy is based on a shared management system between the European Commission and Member States, with the principal aim of ensuring that the principles of regularity, legality and sound financial management are complied with. Nonetheless, the regulatory requirements, which govern the use of EU funds across Member States, are often seen as complex and administratively burdensome, prompting regular calls for simplification from the EU and national actors as well as stakeholders. To this effect, amendments were made to the General Regulation (EC) No 1083/2006, with the twin objectives of accelerating payments from the Structural and Cohesion Funds, while simultaneously reducing the administrative burdens associated with policy implementation.

4. The simplification measures being reviewed for the purposes of this performance audit are listed hereunder, with the first seven being optional and the rest being non-optional.

a. Indirect costs (declared on a flat-rate basis of up to 20 per cent of direct costs);

b. Flat-rate standard scales of unit cost;

c. Lump sums;

d. Permitted in-kind contributions to be declared as eligible expenditure in relation to financial engineering schemes;

e. Advanced payments;

f. Increased flexibility for major projects;

g. Co-financed repayable assistance;

h. Raising of threshold of revenue generating projects; and

i. Single threshold for major projects.

5. The Contact Committee of the Supreme Audit Institutions mandated the Working Group on Structural Funds to carry out an audit on “Simplification of the regulations in Structural Funds”. In this regard, the National Audit Office (NAO) agreed to undertake a performance audit that evaluated nine simplification measures related to Operational Programmes funded by the EU. This parallel audit was carried out in conjunction with 13 other Member States.

6. The principal objectives of this performance audit were to:

a. Examine whether simplification measures have been implemented in Malta;

b. Elicit feedback from the relevant authorities and beneficiaries on their experiences so far;

c. Determine why certain simplification measures were not implemented (if applicable); and

d. Gather feedback of the involved authorities with regard to future simplification measures.

Costs of control

Report ID: 166

Background

In 2000, the Contact Committee of the heads of the SAIs of the EU Member States and the ECA (Contact Committee) set up a Working Group to carry out an exploratory survey on EU Structural Funds. A questionnaire was sent to the SAIs to gain an understanding of how these funds were controlled and managed by the various Member States and to identify possible risk areas. The Working Group reported its findings from this work to the Contact Committee in November 2002.

The Contact Committee subsequently approved three parallel audits. The first of these examined the application of the regulations to ensure that all Member States implement independent checks on 5 per cent of expenditure and had established appropriate audit trails to support transactions. The final report on the review was presented to the December 2004 Contact Committee.

The second parallel audit involved a review of the processes in place for identifying, reporting and following up on Irregularities. The final report on that review was presented to the December 2006 Contact Committee.

As third parallel audit the Working Group carried out a review focused on “Performance (output/effectiveness) of the Structural Funds programmes in the areas of employment and/or environment”. The final report on that review was presented to Contact Committee in December 2008.